Old-School Banking: There's No Going Back

In an American Banker editorial titled A Return to Old-School Banking (part of a series the publication calls What Bank Customers Want), the author writes:

“I prefer the old-fashioned banking model. I don’t care for mobile banking. I don’t own an iPhone. I like my BlackBerry and I’m fine banking in a physical branch. I live in the city. It’s not a big deal for me to walk into a branch; they’re all over the place. I pay my bills online, but prefer to make deposits and withdrawals (over $500) with a person. I also need a live teller when I manage my brokerage and retirement account. My bank has assigned a person to oversee this account.”

Amazingly, in less than 100 words, the author manages to distinguish herself from practically everyone in (what I’m guessing is) her age bracket.

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My take: The views expressed by the author of this particular editorial do not reflect what “bank customers want.”

Bank customers–OK, not all, but many of them, and especially those in the Gen Y and Gen X age groups–want to avoid talking to people at banks. They:

Do not want to make deposits “with a person.” They’re happy to have their paychecks automatically deposited in our accounts, they’ve become increasingly comfortable depositing checks and cash in ATMs, and they’re looking forward to using our smartphones to use some ridiculously-named service called remote deposit capture.

Do not routinely withdraw $500 or more on a regular basis. They pay with debit cards, credit cards, prepaid debit cards, and our mobile devices. Theydo not carry around $500+ of cash.

Do not need a live teller when they manage their brokerage and retirement accounts. First , because many people in this age bracket don’t have those accounts to begin with. Second, because many do not have nearly enough money in their brokerage and retirement account to warrant having a person assigned to “oversee” the account. And third, because nobody (OK, except maybe the author of the editorial) wants to talk to a “teller” about their brokerage and retirement accounts.

Are not OK with going into bank branches. They (think they) have better things to do, regardless if there’s a line in the bank or not.

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There’s more not-so-typical stuff in this editorial:

“Sometimes they call me to discuss my holdings, which is unnecessary because if I wanted to do something, I would’ve approached them myself.”

Most people in this country are not very engaged with the management of their financial lives. They’re not likely to know when they need to change the composition of their holdings, or the allocation of the 401(k) contributions.

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But the part of the editorial that stuck in my craw the most was this:

“The two primary functions of banking should be to take deposits and to make loans. All other services should be supplementary to these two primary activities. I wish banks would refocus more on traditional services. This is particularly true when it comes to making loans, given all that money from the Federal Reserve sitting on the banks’ balance sheets.”

The two primary functions of banking should be taking deposits and making loans? Is that what customers really want? Does the average or typical bank customer know how much money from the Fed is sitting on banks’ balance sheet?

(Full disclosure: I have no idea how much money from the Fed sits on banks’ balance sheets, I don’t know if any money from the Fed actually sits on banks’ balance sheets, and if it does “sit” on those balance sheets, I don’t know what banks do with the money).

I would argue that customers can’t articulate what they really want from banks. Taking deposits and making loans isn’t consumer-speak. If you can find some articulate customers, and asked them what they want, I think they would say:

“Make it simple (and inexpensive) for me to manage my money.”

The problem is the “traditional services” the author of the editorial longs for don’t exactly do this.

Despite the views of the author–which she certainly has every right to have–“old-school” banking is not what most banking customers want. This editorial represents a sample of one.

And while many in the industry are critical of, or disappointed with, the speed with which the industry is moving to “new-school” banking, the industry is indeed moving towards new-school banking.

Sorry, I think but I’m partially going with the editorial. In Germany, where I come from, I think many people prefer tellers instead of mobile banking.
But is there really an opposition between these two positions? What does “make it simple to manage my money” really mean? Does it mean Smart phones or branches? I guess: Both of it.It is the first job of a bank to make loans and take deposits, but that’s something, customers shouldnt be aware of. If you want to buy a house, do you want to effect a mortgage on your phone? Guess not. So mobile _and_ branches will be the answer, but that’s just a single mans opinion…

But Ronny (may I call you Ronny?), I love standing in line waiting for my turn. I get to talk to other people and learn about their lives. Also, I love the hard candy I get from the tellers and get to catch up with them. Did you know my local teller Suzy has a new boyfriend? Apparently, her old boyfriend was bad news. I told her so when she showed me his picture last week. My dog also likes the dog treats they have at the branch. When I was writing my screen play, I used to go to the branch mooch off their Wi-Fi and drink their coffee. It was cheaper than going to Starbucks, although the coffee was pretty awful. I had to get a job, so now I can only go to the branch at lunch time.

Alex: Sorry to hear that you have to work now. Earning your own living and not mooching off others is soooo Un-American. I do have one question for you, though: Did Suzy have any good stock tips or recommendations for how to manage your brokerage and retirement accounts? Since I don’t go to my local bank branch, I don’t know where to turn to get any advice on this.

JM: The blurb by her name said she used to work on Wall Street, and is now involved in some “progressive” organization. Progressive, yet she yearns for old-school banking. Anyway you look at it, she is hardly the typical banking customer.

Cue to the end of the same Steely Dan song: “But I can’t seem to get to you Through the U.S. Mail”. Since they find the Indian equivalent of US Mail too unreliable for delivering print statements, Indian banks use couriers. But, over time, couriers have proved only slightly more reliable than Indian Post but lot costlier. Therefore, banks try and move as many customers as possible to eStatements. For the holdouts, they’ve unilaterally decided to replace print statements with good old passbooks. Now, I don’t know whether this relic of banking exists anywhere outside India, so I must explain what it is: A passbook is a small book on which a bank prints DR and CR transactions. Customers who refuse eStatements must now visit a bank branch to get their “passbook updated”, as the process is called. The author of the American Banker editorial would have her wish fulfilled if she were in India now: She can visit branches as often as she wants.

Seeing so many comments about what people do in a bank branch, I’m reminded of this one: EURO banknotes were introduced at the start of 2001. They had pictures of bridges and rivers from all Eurozone member countries. Customers in Germany – and in other EURO countries – had to visit bank branches to exchange their DM notes for EURO ones. I remember a major newspaper’s editorial predicting that debates about the country of origin of each bridge and river would be the most favorite topic of discussion among customers waiting in long queues in front of the teller!

That article is a complete disaster. I am in the Gen X/Gen Y group and what you talked about above described me to the T. Heck if I pull up to the drive up area and both the ATM and the tellers have no lines, I’ll pull up to the ATM anyway, I’d rather just let the machine do the work. No need to get people into the equation. I usually deposit checks by RDC now whenever possible so I don’t even need ATMs much anymore.

I was at a branch doing research a month ago and the ATM line was around the branch with nobody at the auto teller or in the branch. The manager said she went outside several times to see if people wanted to use the auto teller and nobody did. Wouldn’t make me feel very secure about my job.

I’m the CFO of a credit union. Most financial institutions during the past few years have had excess cash, some of which sits at the Federal Reserve. Having excess cash on our books from the Federal Reserve would mean we’re borrowing cash from them which hasn’t been done much since the financial crisis began. Perhaps the author is referring to government bailout money which I don’t know much about since we credit unions bailed ourselves out. All financial institutions are suffering from over-regulation from Dodd-Frank and the CFPB which restrict lending, especially to those who need loans the most. Finally, the capitalist bankers pay lawmakers and convince regulators that socialist credit unions cannot make loans to businesses. Those capitalists oppose free markets.

Thanks for the comment, Comrade, and the clarification of the excess cash. There is one other thing, though: I think you’re misinterpreting capitalist bankers. They DON’T oppose “free” markets. They define a “free” market as one in which they’re free to do whatever the hell THEY want to do, not one in which you’re free to do what YOU want to do.

Ron… this is one of the most entertaining threads I’ve ever seen in banking. A part of me thinks the producers of Big Brother or Survivor have run out of ideas for new reality shows while waiting to check their bank balance at an ATM, and filled the time writing the article on American Banker. Perhaps if the author actually had a job and went to a branch at an hour that tends to suit an employed individual, her branch experience might be vastly different.

Clearly the industry numbers speak for themselves and Katya is a minority. But then again, isn’t the world all about embracing the minorities? Perhaps the banks should create ‘special’ branches for these very ‘special’ people.

The one thing I think she might be close on is the need for more simple products. Having brilliant mathematicians enter the banking sector in the 1980’s only gave the industry formulas for risk based leverage, creating layers upon layers of isolated ‘gambles’. Consumers do demand simpler products, but going back to the stone age isn’t the answer. The need for product simplification is a key driver behind the consumer shift to prepaid as an alternative to checking accounts(who writes checks?). Where concepts as simple as credit & debit interest appear on statements and had customers ask ‘what is this?’ ‘I don’t understand this’.

Having actually worked in a bank I can assure you, they don’t have any ‘excess cash’ they leverage the hell out every dollar they can on money markets and trading. Counter-party and Bank Risk is a minute by minute balance in the trading rooms. Banks desperate cling to checks is a perfect example, because checks are ‘cash in transit’ which means higher leverage while they owe the amount to no one. Basel II had to introduce strict rules on capital adequacy just to create a reason for bankers to keep ‘something left in the tank’. And we still had the GFC.

The biggest problem is that there are many bankers that will use her article as support for the fact that a ‘large percentage’ of customers want branches, basic products, paper statements, 5% passbooks with monthly updating (that might work), All Savers Certificates (a shout out to old bankers everywhere) and other features of banking long gone. As you know, we all like to read stuff that validates our personal beliefs. There are just too many like her still running banks.

Jim: I’m not sure a lot of bankers even need the AB article to support their view that a large % of customers want branches, etc. They have internal data they spin to support their view. And as Kari commented, “you know what our clients say about our branches? That they can’t do banking without them.”

Nobody raised their hand and said “ooh! ooh! I want to get out of my car in 20 degree weather and pump my own gas!” But gas stations installed pumps that took payments, and got rid of the people who pumped gas for us (unless you live in NJ and I think one other state). And we accept that as the norm. Same with banking. Close down the branches, give ppl good alternative mechanisms for conducting transactions and interactions, and that becomes the new norm.